Wednesday, October 26, 2011

Judge William Alsup, the federal judge presiding over Oracle's patent and copyright infringement lawsuit against Google, just entered a "proposed trial plan", in which he stated that "the trial will not be in 2011".

The proposed plan, on which the parties can submit comments until November 18, envisions a "trifurcated" (three-pronged) trial:

The first phase would focus exclusively on the copyright infringement claims.

At a recent hearing, Judge Alsup expressed hopes that the parties might reach a settlement after the copyright part is decided (whichever way that decision may go). I think that an Oracle victory at that first trial could indeed increase the likelihood of a settlement, but if Google won, I believe the case would go on.

The second phase would focus on patents. I believe the judge still keeps open the option of staying the patent part of the case (in whole or in part) pending reexaminations of the patents-in-suit by the USPTO. Today's proposed plan doesn't mention a possible stay, but that doesn't mean that the idea is off the table.

In phase three, "[a]ll remaining issues will be tried, including damages and willfulness".

This means the judge is inclined to accept Google's suggestion to discuss willfulness only in the remedies phase of the trial. For Oracle, it would be psychologically advantageous to be able to present such incriminating evidence as the Lindholm email as early as possible, which would make the jury much more likely to believe that Google indeed infringes valid intellectual property rights owned by Oracle. Just last week, Judge Alsup denied Google's fourth and final bid to remove the Lindholm email from the evidence file. It can still help Oracle a lot at the remedies stage of the trial, but for the reason I mentioned, Oracle would certainly prefer to show it to the jury as early as possible, which is at least uncertain based on what the judge proposed today.

Google gets another benefit from a separate remedies trial: it may be able to present to the jury the USPTO's first Office actions according to which most of Oracle's asserted patent claims were preliminarily rejected. Google's argument would then be that the USPTO's first actions indicate (regardless of the fact that they're non-final) that Google had a reasonable basis for believing that Oracle's patents-in-suit were invalid. That might enable Google to avoid a finding of willful infringement.

All three parts of the trial would be put before the same jury. To the extent that evidence presented at one trial is relevant to the issues discussed at a subsequent trial (for example, testimony on infringement issues that comes up at the copyright part but also plays a role for the patent part and possibly for the remedies part), it can be brought up repeatedly. Oracle recently argued against a separate copyright trial, mostly on the basis of significant overlap between the evidence to be presented in both phases.

The trial plan the judge proposed today favors Google, but the reason the judge decided to do this may be that he still believes (as he indicated on previous occasions) that Google is on the losing track, so he may just want to reduce the degree of certainty on Oracle's part in order to increase the likelihood of a settlement. But just like all of Judge Alsup's previous tactical games failed to bring about a settlement, I'm skeptical it will work this time. I think the most likely course of action is that we will at least see a copyright trial.

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Today a court in Milan, Italy, refused to take an immediate decision on Samsung's request for a preliminary injunction against the iPhone 4S. Instead, Samsung has until November 15 to file a new pleading, and Apple will get to reply to that one until December 6. On December 16, the court will hold the next hearing. In the meantime, Apple will launch the new iPhone in Italy (at the end of this week).

Last week, a Paris-based first-instance court that hears all French patent cases also decided to schedule another hearing. That one will take place on November 15. The primary (if not exclusive) purpose of the delay in France appears to be to give Apple more time to obtain material from Qualcomm regarding that chip maker's contractual relationship with Samsung, which may or may not provide Apple with a basis for a patent exhaustion defense.

Even though I can't claim to know the procedures for preliminary injunctions in those jurisdictions, the fact that the courts in France and Italy take more time and let Apple launch the iPhone 4S in the meantime doesn't bode too well for Samsung. It's still possible that Samsung could win in one or both of these countries after a second hearing, but if judges feel strongly that there's a solid case for a preliminary injunction, then they grant a preliminary injunction right away or at least pressure the defendant into a deal under which it will hold off on launching the accused product until the court has decided (for example, the Federal Court of Australia convinced Samsung twice that it was better to postpone the launch of the Galaxy Tab 10.1, and ultimately ordered a preliminary injunction).

But to the extent that Apple's ability to prevent such injunctions depends on its exhaustion defense, it still has to deal with a significant degree of uncertainty between now and the second hearings in France and Italy. I'm sure many observers of this dispute feel that this is fair game in light of all of the uncertainty (and actual harm) that Apple's legal actions create for Samsung all the time. And I guess Apple knows pretty well that what goes around comes around.

The exhaustion defense may be very solid. It depends on what's in the agreement between Samsung and Qualcomm. But Qualcomm doesn't have a track record of favoring patent exhaustion. It certainly values Apple as a customer, but Qualcomm is very much in favor of "double dipping" by patent holders.

Compared to the courts in France and Italy, a Dutch court based in the city of The Hague recently made a decision that worked out much better not only for Apple but also for the tech industry at large: it decided to cut things short and abort the process on the grounds that Samsung wasn't deemed entitled to an injunction based on FRAND-pledged patents declared essential to an industry standard at this stage (only if Samsung had made Apple a FRAND offer, which wasn't the case in the Dutch court's view, and if Apple had then refused to pay a FRAND price). The Dutch case wasn't about the iPhone 4S, but other than that, it presented pretty much the same FRAND issues as the French and Italian cases. The Dutch judge identified Apple's FRAND defense as a potentially decisive (and ultimately successful) defense and therefore ruled on that issue first, eliminating the need to look more closely at the validity of the asserted patents, the infringement claims and the Qualcomm contract. That way, the Dutch court saved judicial resources, accelerated the decision-making process and provided the technology industry at large with what it needs: legal certainty concerning FRAND licensing commitments.

I don't know whether the judges in France and Italy just don't understand FRAND well enough or want to have, as a matter of principle, all the evidence on the table before they decide. If their final decisions also point out clear limitations of what FRAND patent holders may demand, those rulings could still be equally useful to the industry as the Dutch one.

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ACT's public interest comments were filed late on Monday and I reviewed them today. As I expected, ACT strongly opposes any weakening of patent rights, arguing that this would hurt innovative businesses, particularly the roughly 3,000 small and medium-sized companies that ACT represents. In addition, ACT receives sponsorships from some large players including Intel, Microsoft and Oracle. ACT officials have repeatedly testified in U.S. Congress on policy issues.

As I mentioned on a previous occasion, ACT and I had and continue to have disagreements on certain IP policy issues, but apart from an exclusively positive depiction of the impact of patent enforcement, I think ACT's submission highlights some important facts in a competent, thoughtful way and puts a spotlight on certain undeniable shortcomings of Google's and HTC's public interest arguments. That's why I believe ACT's filing is a useful source of information for everyone wishing to form an independent opinion on these issues.

I have uploaded the main document of ACT's filing to Scribd. If you read the whole 26-page statement (which comes with multiple supporting documents), you'll stumble upon numerous typos. My blog posts also tend to have some typos when they go online for the first time, but it's easier to fix typos post-publication on a blog than in an official filing.

In the following I'll outline the most interesting ones of the points ACT makes.

ACT argues that "[a] majority of mobile applications used worldwide are created by American small business developers" and refers to a study it recently conducted, according to which more than 88% of the best-selling mobile applications came from small businesses. ACT then goes on to say that "[t]hese small business developers are risk takers in high technology fields that depend on strong IP protection for a return on that risk.

I have in recent months been in contact with many app developers who were targeted by Lodsys and other patent holders. I think it's fair to say that patents are a doubled-edged sword for small mobile developers. But I have also seen cases in which large companies simply stole ideas of small app devs, and if those app devs had overcome their philosophical objections to software patents and sought intellectual property protection, they'd have been in a much better position to defend themselves.

I believe that small businesses developing mobile apps will increasingly seek patent protection (at least that's what I'd recommend every mobile app dev to do under the current framework), and ACT has a point that some mobile app development activities could be discouraged by a weakening of patent rights and their enforceability.

ACT basically says on page 1 of its filing that Google and HTC propose that the ITC give up its mission:

"Google and HTC effectively ask the Commission to abandon its core mission of stopping unfair practices, and instead venture into the business of setting national telecommunications, competition, and intellectual property policies of sweeping dimensions. Google and HTC argue that the Commission should somehow factor into their analysis in this case speculative assumptions about other pending Android cases, and grant the Android platform a categorical immunity from all [ITC] relief."

On a different page of the document (page 6), ACT puts it like this:

"Should [U.S.] Congress decide it prudent to grant Android patent law immunity under [the law governing ITC import bans], it can certainly do that."

In other words, if Google and its device maker partners want a free pass for Android's infringement, they need to change the law, but within the existing legal framework, ACT proposes that the ITC refuse to turn itself into a selective promoter of otherwise unlawful conduct. ACT, however, hopes that the ITC will continue to be an "arbiter of many of the most high profile and important patent disputes in the world [...] precisely because it has taken its legislative mandate to heart and has been steadfast in providing impartial, expeditious adjudication of infringement claims, and where warranted, effective remedies."

Some of ACT's rhetoric goes beyond my personal positions, but I agree that the ITC's credibility is at stake. Whether or not one likes that software is patentable, all patent holders and infringers must be treated equally. Public interest considerations should stand in the way of import bans (or give rise to far-reaching exceptions) only under the most egregious of circumstances, and it's hard to see such circumstances in this case.

ACT says that "there have been only three cases in the history of the [current ITC statute as amended most recently in 1988] where relief was denied on public interest grounds, the last being nearly 30 years ago".

ACT points out that Android isn't truly open, which others have said before it, and recalls some of the information that showed up in the Skyhook lawsuit and proves that Google uses its control over Android to advance its business interests and restrict the extent to which its device makers can differentiate their products. ACT lists all of the closed applications that ship with Android: "Google Search, Google Maps, YouTube, Gmail, Talk, Messaging, Google Voice and the Android Market."

In my view, everything that ACT says in this context is spot-on and acknowledged by everyone who doesn't have a pro-Google bias.

Besides disputing Android's openness ACT also argues that even if Google were right on openness, open source software can't be put above patent law -- and it doesn't have to, given that it's very successful under the existing legal framework. In this context, ACT mentions the fact that the GPL (GNU General Public License) has an entire section on patents (§ 11 of GPLv3, which ACT attached as an exhibit to its filing).

ACT also refers to Red Hat's second quarter revenues of $281 million and IBM's "over 500 commercial prodcuts that run on Linux". Furthermore, ACT points to the Open Invention Network (OIN), "a patent cross-licensing effort that has its express and sole purpose to protect Linux".

Finally, ACT says that "[t]here is no reason for [which] a platform that enjoys such commercial success and industry support should be exempt from the patent rules that govern the rest of the technology marketplace".

It's hard to disagree with ACT on any of that. Non-ideological analysts all agree that open source is thriving under the current legal framework and that the rational forces in open source have found ways to coexist with the patent system.

ACT also dismantles Google's and HTC's arguments concerning emergency response and other use cases in the public interest ("all mobile devices and smartphones -- not merely HTC's devices -- benefit national defense, disaster relief, and medical applications"). ACT also points to, for example, the use of the iPhone by U.S. forces stationed in Afghanistan.

Since an ITC import ban always only affects products infringing certain patents but doesn't relate to products modified so as not to infringe, ACT argues that HTC should simply alter its products in order to steer clear of infringement, and in that case, there wouldn't be any public interest concerns. ACT also proposes that HTC might "perhaps" take a license to address any such infringement issues.

While Apple's willingness to grant a license is a different question, it's accurate that an infringement can be addressed through technical changes. The patents at issue in this investigation are not the kind of patents that would make it impossible for HTC to sell smartphones and tablet computers in the United States. To the extent that the parties' filings are in the public record, I haven't really seen any credible argument that modifying Android wouldn't be a reasonable way to respond to a potential import ban. Chances are that Google and HTC have been working on such modifications for some time.

Concerning the 4G argument (the basis for the ITC staff's latest recommendation of a limited exception to a potential import ban), ACT also makes some strong points.

ACT notes that "HTC jumped to a quick start in marketing its 4G mobile products" but "will likely have difficulty hanging on to its early market share as more 4G handsets come to market" as "competitors will surely battle for position in the 4G smartphnoe marketplace". This makes sense, and whenever I read those 4G-related public interest arguments (also in connection with Apple's motion for a preliminary injunction against four Android-based Samsung products), it strikes me as unrealistic that operators almost suggest that the next few months will be a make-it-or-break-it period for 4G as a technology. In my view, the adoption of 4G in two or three years will be pretty much the same whether or not the entirety of Android-based 4G devices is fully available during the next six months.

ACT argues that "the line between '3G' and '4G' on which HTC places heavy reliance is still highly debatable" and points out to a Congresswoman's initiative "to introduce legislation that would establish real guidelines for determining '4G' speed". As a result, ACT says that "HTC's claim to over 50% of 4G devices in the market may be overstated, or at the very least, is unreliable". In this context ACT also provides examples and notes that "[b]ecause leading national and regional carriers choose not to offer HTC products, HTC's devices are far from irreplaceable".

I believe the small business-focused argument and other well-reasoned points made by ACT will bear significant weight with the Commission. In a worst-case scenario, the ITC could ruin its reputation by weakening patent rights in an effort to play favorites with Google while ignoring the profound concerns of an organization representing approximately 3,000 small innovative businesses.

I'm very much in favor of public interest considerations in connection with patents, but I think Google, HTC and others picked the wrong forum to have that kind of a broad and general debate. The ITC's job is not to change the rules, but to apply them consistently and reliably. As far as the specific investigation at issue (no. 337-TA-710) is concerned, an import ban would simply be the normal course of business if the ongoing Commission review resulted in a finding that one or more valid Apple patents are infringed by HTC's Android-based devices.

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Monday, October 24, 2011

The ITC staff's initial position on a potential import ban against HTC's Android-based devices was that such a sanction "is not contrary to the public interest", especially since other devices (devices made by other companies as well as HTC's own Windows Phone-based products) could easily replace HTC's Android devices. However, the ITC staff has softened its stance and now advocates a "narrow exception" that would allow HTC's 4G-capable Android devices to be unaffected for a period of six months following an exclusion order.

The public version of the ITC staff's position (dated October 17) became available today (October 24). In the first paragraph of the brief's section on remedy and the public interest, the ITC staff tries to describe its new position as consistent with the previous one:

"In its opening submission, OUII recommended that, in the event a violation is found, a limited exclusion order should issue against the HTC Respondents. In OUII's view, the issue raised by the submissions of HTC and third parties (Google and T-Mobile) is not whether an exclusion order should issue, but whether any exceptions to such an order are appropriate based upon the public interest. As discussed below, OUII submits that, based upon the parties' and third-party submissions regarding the public interest, any exclusion order should contain a narrow exception to allow for the continued importation of HTC's 4G-capable devices for a limited duration."

The above paragraph contains a major factual error. Contrary to the above mischaracterization, the three named companies (HTC, Google and T-Mobile) clearly attempted to convince the ITC that there shouldn't be any import ban at all. In fact, Google's letter doesn't say anything about exceptions. I have run a search (with Adobe Acrobat Reader in this case, not Google) and the word "exception" does not appear in that entire document.

In the subsequent section, the ITC staff then makes a distinction between HTC's "more generalized concerns" and that part of its argument that "focuses solely on the availability of HTC Android phones that are capable of utilizing wireless carriers' newly-launched 4G networks".

There is precedent for an exception to an exclusion order: a case involving Qualcomm and Broadcom. In that case, the ITC wanted to mitigate the effects of an import ban on network operators and ordered an exception related to 3G devices.

What works in HTC's favor here is that it has a disproportionately large share of the 4G phone market in the United States:

"The effect of the exclusion of HTC's 4G capable phones on the development of 4G networks would be exacerbated by the relatively small number of alternative suppliers of 4G-capable phones. Presently, there are very few companies that offer phones capable of operating on 4G networks, and those companies each offer only a few models of 4G-capable phones. Indeed, by OUII’s estimates, there are only five companies other than HTC that appear to offer any 4G smartphones. Insofar as HTC currently provides an estimated 50-60% of the share for all 4G phones sales [...], the remaining companies each provide for a corresponding smaller share of the 4G market. Moreover, Apple does not offer a phone capable of operating on a 4G network (Id. at 54), and will thus be unable to drive demand for 4G networks at the current time. As another major carrier, T-Mobile, explained 'Without these HTC Android smartphones, T-Mobile would be unable to meet the customer demand for smartphones that take advantage of its new, faster [4G] network.' [...] Thus, prohibiting the importation of HTC's 4G phones (which currently command the largest share in sales) may mean that 'consumers would lose access to [the] fastest technology.'"

In a related footnote, the ITC staff says that it knows of only three 4G-capable phones that run on other platforms than Android:

"Indeed, if one were to exclude all Android-based 4G phones as alternative to HTC's 4G phones, this would leave virtually no substitutes. In fact, OUII is only aware of three products currently offered that are non-Android-based smartphones that are capable of operating on the 4G networks – i.e., Samsung Focus, RIM Torch; and RIM Bold."

The ITC staff then claims that Apple should be able to live with such an exception, but I'm sure Apple views this differently:

"In contrast, the harm to Apple from an exception to the exclusion order is likely to be small. Apple currently does not have a competing 4G device. Additionally, the number of 4G HTC devices is fairly small at this time. Thus, Apple will still enjoy the benefit of an exclusion order that is limited , for the present, to only HTC’s 3G devices."

This is how the ITC staff concludes the public interest section of its reply brief:

"OUII is of the view that a six month limitation on the exception is adequate to mitigate any harm to the public interest based upon an immediate exclusion of 4G smartphone by prevent any quelling of innovation, deployment and acceptance of the 4G networks, maintaining supply of the limited number of available 4G capable phones while still benefitting Apple by excluding all of HTC's 3G phones as well as 4G phones after expiration of the 6 month exception. In sum, OUII submits that an exclusion order against all HTC Android-based phones should issue with the exception for HTC's 4G devices, but that exception will expire six months from the date of the exclusion order (i.e., June 6, 2011) based upon the current target date of December 6, 2011."

Note that the above is the ITC staff's recommendation. It's for the Commission (the six-member decision-making body at the top of the ITC) to decide.

For HTC, being able to continue to sell 4G phones would greatly reduce the impact of an import ban (and for now it's not even clear whether there will be an import ban at all) during the exception period. HTC already sells mostly 4G phones in the U.S. market, and in the event of an import ban against its 3G devices, consumers seeking to buy an HTC product would opt for a 4G phone.

In this scenario, HTC would benefit in another very important way from having positioned itself as the leader in 4G devices.

For the time following such an exception period, the impact of an import ban would depend on the technical scope of the final decision. HTC and Google will have begun a while ago to work around at least the two patents that the ALJ believes are infringed. If they can finalize any workaround between now and June 2012 in a way that doesn't degrade Android's user experience, performance or compatibility with existing applications, then the exception period would be extremely valuable to them. Otherwise, if the technical scope of the decision is too broad and negative effects can't be avoided, six months would make only a limited difference.

From Apple's point of view, even an import ban with an exception would be a milestone. This is the first litigation Apple ever brought against Android, and regardless of its actual business impact, Apple wants a victory that it can build upon. If one or two patents are held valid and infringed by Android, Apple can claim that Steve Jobs was right in calling Android a "stolen product". In any event, Apple will continue to assert many other patents in order to identify a set of winning patents with which it could have major disruptive impact on Android. Once Apple has its "winning team" in place, it can go against all Android device makers and, potentially, Google itself.

In the immediate future, it will be interesting to see how Judge Lucy Koh of the United States District Court for the Northern District of California rules on Apple's motion for a preliminary injunction against four Android-based Samsung products. 4G-related public interest issues were also raised in that litigation (by Verizon and T-Mobile).

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Friday, October 21, 2011

The December 6, 2011 target date for a decision on Apple's first ITC complaint (of two) against HTC is nearing. In my previous post I wrote about the ITC staff's statement according to which a possible import ban of HTC's Android-based devices would not run counter to the public interest. In another development, HTC is trying to leverage a recent Federal Circuit ruling to remove from the ongoing investigation one of the two Apple patents an Administrative Law Judge deemed valid and infringed.

Yesterday, HTC's lawyers filed the public version of a document originally filed on Monday. Its title: "motion for summary determination of intervening rights as to U.S. Patent No. 5,946,647 in view of claim narrowing in reexamination of same and for termination of investigation as to same in view of intervening rights". The simplified version is that they want to get rid of the '647 patent arguing that the patent now has a narrower scope than it had when the investigation started.

In July I published the infringement claim charts with which Apple argued at the time of its complaint that its rights were infringed. I called it an "action-on-data-structure patent" or, to just use one example of what it's good for, a "number tapping patent". If you receive an email on your phone that contains phone numbers, real-world addresses or website URLs, those will be recognized and underlined like links on a web page. You can then tap on, for example, a phone number to bring up a dialer, or on an address to show it on a map. Fortune.CNN.com produced a screenshot that shows multiple linked data structures in a single email.

Apple came up with the underlying idea long before the iPhone. This patent is from the mid-1990s.

Apple asserted this patent in its ITC complaint against HTC in March 2010. Nokia was temporarily a co-defendant in that investigation, but the '647 patent was not among the patents that Apple asserted against both Nokia and HTC at the ITC. However, Apple asserted it against Nokia on June 28, 2010 in a federal lawsuit filed in Wisconsin and later transferred to Delaware.

Apple also asserted it against Motorola Mobility in December 2010. On October 8, 2010, MMI had already requested declaratory judgment of invalidity and non-infringement of a dozen Apple patents including this one.

On October 15, 2010, the USPTO received an ex parte reexamination request, meaning that a party raised issues based on which the patent should be invalidated or narrowed. I have not been able to find out who brought that request. The request that I tracked down was filed by a patent attorney without stating a client as far as I could see. Theoretically it could be any of the three parties Apple asserted the patent against, or maybe it was a coordinated effort of two or all three of those parties.

It's not unusual for a first Office action (the first statement of the USPTO following a decision to reexamine a patent) to preliminary reject all of the challenged patent claims. The patent holder then has to convince the USPTO that those claims should be affirmed. For that reason, Apple explained in late August 2011 why it believed the '647 patent related to an innovative achievement despite such prior art as the aforementioned Nokia patent application.

In that document, Apple argued that the Nokia invention from 1991 did not link at least one action to the detected structure (as the Apple patent describes) because it did not link an action directly to a phone number. HTC now says that "linking directly" is a narrower definition than just "linking". HTC argues Apple narrowed the scope of the patent claim regardless of what will happen during the remainder of the reexamination: the mere fact that Apple made such a statement can be held against Apple from now on.

Less than a month ago, the Court of Appeals for the Federal Circuit (which hears appeals of patent-related decisions from the district courts as well as appeals to ITC decisions) took a landmark decision on so-called intervening rights. For a description of Marine Polymer Tech. v. Hemcon, Inc., I recommend PatentlyO's article.

Intervening rights basically let an infringer continue with an infringement for some time if the scope of a patent changes during reexamination. That's nothing new. What's new since the Marine Polymer decision, however, is that such rights can be based not only on the final outcome of a reexamination but also on a patent holder's representations to the USPTO in the reexamination process.

Citing the Marine Polymer decision, HTC now claims that "Apple's arguments narrowing the asserted claims in the reexamination must be 'treated as an irrebuttable presumption that the original claims were materially flawed.'"

As a result, HTC claims it has intervening rights, and therefore the ITC should terminate the investigation as to the '647 patent.

HTC says that the Commission (the six-member decision-making body at the top of the ITC) doesn't even have to refer this question to the ALJ. Instead, HTC believes the Commission could decide on this matter of law itself.

It's difficult to analyze the merits of HTC's theory because large parts (multiple pages, in fact) of the passages of the ALJ's initial determination discussing the infringement of the '647 patent are redacted. That makes it very hard to assess whether Apple's clarifying insertion of the word "directly" really changes anything about the infringement of that patent by HTC's Android-based devices and, in particular, an Android library named Linkify. Interestingly, HTC says that, according to Marine Polymer, "intervening rights arise when claims are narrowed in reexamination regardless of whether the narrowed claims are infringed".

Based on the original claim charts and the differences Apple claims to exist between the '647 patent and the Nokia patent application, I don't think that the insertion of "directly" (in the sense in which it was meant in the context of that filing with the USPTO) is a get-out-of-jail-free card for HTC. I have the impression that "directly" was meant as "immediately" (in terms of an immediate mark-up) while the Nokia application passes data around before anything happens with it. But again, some of the relevant information is not accessible.

Even though HTC says that the investigation should be terminated with respect to the '647 patent regardless of whether it still infringes the claim, I'm not sure this will really happen. I guess the ITC will take a decision on whether or not the '647 patent is valid and infringed. Apart from the specifics of this case, the alternative would mean that the ITC would probably have to terminate its investigations with respect to many patents if the hurdle was too low for arguments made by a patent holder during reexamination to render a patent unenforceable for the purposes of an ITC proceeding.

But HTC might benefit from this initiative in a psychological sense even if its motion failed. Should the ITC already has doubts about the '647 patent, then this additional potential issue could tip the scales in HTC's favor.

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The first Android company Apple sued was HTC. An import ban against HTC's Android-based products could be ordered before the end of the year, followed by a 60-day presidential review period. In mid-July, an Administrative Law Judge (ALJ) at the US International Trade Commission (ITC) found HTC in infringement of two Apple patents. The Commission (the six-member decision-making body at the top of the ITC) is now reviewing that determination with a December 6, 2011 target date for a final decision. After an ALJ finds a violation, the ITC routinely encourages public interest statements on the possible impact of an import ban.

While Google and T-Mobile submitted public interest statements that predicted doom for the U.S. job market and the ability of first responders to deal with emergencies, the staff at the ITC's Office of Unfair Import Investigations (OUII) just dismissed any such concerns and supported Apple's argument that there are alternative products running Android as well as other operating systems, including that HTC itself offers Windows Phone handsets. Here's the related section from the OUII's statement (all emphasis -- except for the section headline -- mine):

C. Public Interest

Before issuing relief against a respondent, the Commission must consider the effects of such relief on the public health and welfare, competitive conditions in the U.S. economy, the production of like or directly competitive articles in the United States, and U.S. consumers. Section 337(d) and (f). OUII is unaware of any public interest concerns that would preclude issuance of the exclusion order proposed by OUII in this investigation.

OUII is of the view that the exclusion of imports of [HTC's] accused products is unlikely to have any significant impact on the public interest considerations identified in Section 337(d). See Certain Compact Multipurpose Tools, Inv. No. 337-TA-416, USITC Pub. No. 3239, Commission Opinion at 9 (September 1999). The public interest favors the protection of U.S. intellectual property rights by excluding infringing imports. Certain Two-Handle Centerset Faucets and Escutcheons, and Components Thereof, Inv. No. 337-TA-422, USITC Pub. No. 3332, Commission Opinion at 9 (July 2000). Public interest considerations have generally not been found sufficient to preclude issuance of relief. However, there have been a few investigations in which public interest concerns have led to the denial of relief after a violation of section 337 has been found. For example, in Certain Automatic Crankpin Grinders, Inv. No. 337-TA-60, the Commission denied relief on the basis of an overriding national policy in maintaining and increasing the supply of fuel efficient automobiles and the domestic industry's inability to meet domestic demand for such vehicles. Crankpin Grinders, USITC Pub. No. 1022 (1979) at 18-20 (1979). However, a key consideration in these investigations was the complainant’s inability to meet consumer demand if the respondent's products were excluded. Here, there is no evidence that U.S. demand for the accused products cannot be met by numerous other entities, including [Apple] or its licensees.

At present, smartphones represent 40% of the U.S. mobile device market. While Android-based smartphones account for approximately 40% of that market, HTC's smartphones running the Android operating system only represent 14% of that Android-based smartphone market. Motorola, Samsung and others companies account for the remaining share of the market. Id. Moreover, Apple, Nokia, RIM, Samsung –and even HTC – supply smartphones utilizing operating systems other than Android. These non-Android-based smartphones account for over 60% of the U.S. smartphone market. See n. 6 supra. Thus, because the proposed limited exclusion order in this investigation is directed solely to infringing HTC smartphones running the Android operating system (and not all smartphones using the Android operating system), the exclusion of the accused Android-based HTC smartphones would not affect the sale of smartphones running Android (other than HTC's products) or any other smartphones using alternative operating systems.

HTC contends that the exclusion of the HTC Accused Devices from the U.S. market would not only eliminate the most popular brand of smartphones, but would also impact the public health, safety, and welfare concerns of individual U.S. consumers. See HTC's Statement on Public Interest (August 25, 2011). HTC argues that the HTC smartphones are compatible with hearing aids, comply with the Department of Homeland Security's requirements in connection with 'enhanced 911' or 'E911' location services, and provide Emergency Alert Services. Id. However, despite the useful nature of these HTC devices to key safety and emergency personnel, there is no indication that other smartphones could not serve as acceptable replacements or that there would be any lack of supply for such alternatives. Currently, there are at least four leading manufacturers of smartphones – other than HTC – that sell devices in the U.S., which account for 86% of the market that would not be subject to the exclusion order in this investigation. Furthermore, despite HTC's contention that consumers would be faced with significant diminishment in their preferred choices for smartphone features, functions, and prices, OUII submits that there continues to be a rising demand for smartphones and, thus, there will continue to be strong competition among manufacturers in this constantly varying market.

In sum, based upon the facts in this investigation, OUII is of the view that the exclusion of [HTC's] accused products will not have a significant public interest impact. Indeed, as noted above, even though Android is currently one of the leading platforms for smartphones, there are several alternative sources for Android-based smartphones other than HTC. Moreover, there are also numerous smartphones running alternative operating systems. [a related footnote says: "Other operating systems offered on various smartphones include: the iOS on the iPhone, Blackberry OS, and Microsoft Windows. Apple's Public Interest Statement"] Thus, it appears that there will be ample competition and alternative non-infringing sources for these devices. See n. 6 supra. Accordingly, OUII submits that the recommended relief is not contrary to the public interest.

Steve Jobs would have loved to read all of the above.

The whole purpose of the OUII is to represent the public interest in those investigations. It's neutral. In this case, it dismisses public interest concerns. The OUII doesn't believe there's an infringement of valid patents in this case, but if the Commission agrees with the ALJ and Apple, then the OUII believes that an import ban is perfectly appropriate and that the enforceability of intellectual property is an overarching public interest consideration.

Public interest issues were also raised in federal court in connection with Apple's motion for a preliminary injunction against four Android-based Samsung products. A decision on that motion is imminent as I write this post (I don't know if it will still come down today, but if not, then I believe we'll most likely see it next week). Verizon and T-Mobile submitted amicus curiae briefs in support of Samsung that raised very similar (and partly the very same) arguments as HTC's public interest statement.

An industry body named ACT (Association for Competitive Technology) also appears to be preparing a public interest statement in support of Apple. ACT president Jonathan Zuck asked for an extension of time until Monday (October 24, 2011), which the ITC granted. I have previously seen Jonathan at some patent policy events in Brussels. In February 2005 he "crushed" a press conference I gave in Brussels during the campaign against software patents I was running at the time. It was a pretty good event that generated coverage by the New York Times and other media. One of my panelists, Jerzy Buzek, later became (and currently is) the President of the European Parliament. To make a long story short, Jonathan consistently advocates that small and medium-sized technology companies depend on strong intellectual property protection. That's why I have no doubt that he's going to come down on Apple's side.

ACT's motion for an extension of time characterizes Google's public interest statement as being based on "sweeping contentions regarding terms of competition and other characteristics of the 'U.S. mobile ecosystem.'" That wording indicates that ACT considers Google's concerns about a possible import ban unfounded. ACT also argues that "the Commission should benefit from a robust exchange of views based on the complete universe of arguments proffered".

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Thursday, October 20, 2011

The US International Trade Commission is an increasingly popular patent enforcement agency especially among companies asserting patents against mobile devices, which are typically manufactured outside of the United States and therefore susceptible to import bans, which the ITC can order. But the rising tide of litigation and the fact that fewer ITC investigations are settled at their early stages than in the past make it hard for the ITC to cope with its enormous workload. There are definitely signs of the ITC slowing down a bit, even if it is still faster than the vast majority of United States district courts.

The latest sign of a slowdown: on Friday, Administrative Law Judge Theodore Essex entered orders in the investigations of Microsoft's and Apple's complaints against Motorola Mobility (investigations no. 337-TA-744 and 337-TA-750, respectively), extending the target dates of those investigations -- and consequently also the deadlines for his initial determinations -- by "approximately six weeks". Theoretically, this delay could be overturned by the Commission, the six-member decision-making body at the top of the ITC, but that is unlikely to happen.

This is my first blog post on litigation involving Microsoft since I announced that I am conducting a study on the worldwide use of FRAND-pledged patents that is commissioned by Microsoft. As I explained on that occasion, my blog is my personal platform and reflects my independent convictions regardless of which companies play a role in the subjects I report on. But on this particular occasion I thought it appropriate to remind everyone of the aforementioned disclosure.

The target date for the final decision of the ITC on Microsoft's complaint against Motorola Mobility was March 5, 2012. Motorola Mobility asked for a postponement by three months, which was denied. Now Motorola Mobility gets roughly half of the delay it asked for.

The ALJ's initial determination was due on or before November 4, 2011. It has now been pushed back to December 16, 2011. The new target date is April 16, 2012.

A six-week delay does not change much about the fact that Motorola Mobility's federal lawsuits are far behind this ITC investigation, after all of the non-stayed cases between the parties were transferred to the Western District of Washington.

In his order, ALJ Essex pointed out that Microsoft has dropped only two of the nine patents it originally asserted. In order to enable the ITC to decide quickly, litigants frequently drop many patents. For example, Apple dropped six of the ten patents it initially asserted in it first ITC complaint against HTC.

I believe a decision that finds Motorola Mobility -- and, by extension, Android as a whole -- in infringement of multiple Microoft patents is probably more useful to Microsoft than a quick decision on a smaller number of patents. The majority of all Android devices sold in the U.S. market are already covered by royalty-bearing licenses Microsoft granted to nine other device makers than Motorola, including Samsung (which just presented the Galaxy Nexus, the official lead device for Android 4.0) and HTC. But it appears that Microsoft expects to receive royalties on every Android device without any exception. Motorola Mobility is the last one of the "big three" Android device makers to have refused to take a license from Microsoft.

In Apple's ITC case against Motorola, the target date was March 30, 2012, and the initial determination was due by November 30, 2011. The new target date is May 14, 2012, and the initial determination will be issued on or before January 13, 2012.

ALJ Essex noted that the schedules of these two investigations would have required him to hand two initial determinations next month.

It's fair to say that prior to this delay, Motorola wasn't too lucky concerning the schedules of its ITC disputes with Apple. Even though Motorola filed its ITC complaint against Apple almost two months (!) earlier (in early October vs. late November 2010), Apple's case progressed faster -- in no small part due to the fact that Apple asserted only three patents in that complaint -- and Motorola's case was put on hold in early August because the ALJ originally presiding over that investigation (no. 337-TA-745), Paul Luckern, surprisingly resigned. He didn't explain his reasons in a public statement (according to rumors I heard, this was due to internal issues involving Kodak's case against Apple and RIM, but an ITC spokeswoman said this decision was unrelated to his work at the ITC and purely personal). The ITC hired two new ALJs just recently, but since early August, Motorola's case against Apple was on hold. Formally there was a new ALJ, but he didn't have time to work on it and suspended all dates (hearings, motions, everything). The hearing was originally scheduled to begin on August 22. The investigation should continue soon, but Motorola lost about three months for no fault of its own. This inconvenience is now alleviated in part by the six-week delay of Apple's case against Motorola.

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Wednesday, October 19, 2011

Bloomberg and Reuters report that Judge Alsup told Oracle and Google at a hearing today that the Halloween trial date, which he had previously declared likely to be postponed, is vacated due to scheduling conflicts. For what I know, Judge Alsup is going to presiding over a gang murder trial, but I haven't been able to corroborate that information I received from one source.

This is the text of the order that the judge entered a few hours after the hearing:

Due to a lengthy criminal trial set to begin on October 24, 2011, the final pretrial conference set for October 24 and the jury trial set to begin on October 31 are both VACATED. Dates for the final pretrial conference and trial will be re-set in due course.

When the judge indicated for the first time, in late August, that the trial date might have to be postponed from Halloween, he said that if it's delayed, "it will be delayed considerably". According to the report, he would still like to ensure a near-term trial, but he can't preside over it personally. The options he outlined include a near-term trial before different judge and possibly a separate first trial on copyright.

Late last night, Oracle filed a case management statement in advance of today's hearing. Oracle takes a clear "all or nothing" position on the scope of a trial: it doesn't believe a separate copyright trial makes sense. Oracle argues that many of the witnesses would have to testify on both patent and copyright infringement issues. Oracle also argues that "[t]he story of this infringement is not divisible" and common elements of the patent and copyright parts of the case might be decided inconsistently by different juries. Oracle finally says that separate copyright and patent trials would "lengthen the overall trial of this case".

In a different context, Oracle actually seemed to keep the door open for a separate copyright trial by arguing that damages could be determined separately for the alleged copyright infringement. In retrospect, it turns out that Oracle just defended its revised damages report but has other reasons for which it doesn't consider a separate copyright trial a good idea.

Apparently, Judge Alsup believes that a first trial on copyright could increase the likelihood of a settlement. I believe the only scenario in which that would work is if Oracle won. In the other event I guess Google will keep on fighting.

Oracle's case management statement also discusses a couple of ideas that Oracle outlined beforehand for the scenario of a postponement. Those ideas are now relevant. Oracle wants to bring two summary judgment motions "to narrow the issues in the case for trial":

Oracle would now like to bring a summary judgment motion to have the judge determine that its 37 asserted API design specifications are copyrightable. In August, Google asked for the opposite determination and failed for the most part, but that didn't resolve the issue. It just meant that this would be put before the jury.

Now Oracle tries to win on this count on summary judgment "to narrow the issues in the case for trial". If the related APIs are found copyrightable, Google can hardly convince the jury that there's no infringement. It always argued that the relevant material was not protected by copyright.

If Oracle had so desired, it would have had the choice to bring this declaratory judgment action back in August. At the time, Oracle contented itself with a focus on fending off Google's summary judgment. I don't know whether Oracle thought at the time that two competing summary judgment motions would increase the likelihood of a decision in Google's favor. What seems more likely to me based on the record is that Oracle is now optimistic about its chances of winning a summary judgment on copyrightability. Oracle's case management statement quotes from the judge's order dismissing the most part of Google's motion and additionally points out that the standard for copyrightability is not very high.

A second Oracle motion would propose to dismiss Google's four equitable defenses (laches, equitable estoppel, implied license and waiver). If Oracle succeeded with that initiative, Google's defenses would be limited to the validity of the asserted patents, the copyrightability of the asserted material (which could be resolved by summary judgment as far as the 37 API-related files are concerned), and the question of whether there actually is an infringement.

It will be interesting to see how Google proposes to make use of the additional time between now and a potentially postponed trial.

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Samsung has persuaded a federal court to run a razor over Apple's FRAND-related counterclaims, cutting off some excessive parts without materially reducing the likelihood of success of Apple's FRAND defenses against some of the patents Samsung is asserting in the United States. In a nutshell, Apple fails to convince the court that Samsung committed any wrongdoing that harks back to when it participated in the 3G standard-setting process, but as far as the current situation is concerned, Samsung will nevertheless have to honor its FRAND commitments. This here is entirely unrelated to Apple's own patent infringement claims against Samsung. It's all about how Apple can defend itself against Samsung's counterattack.

In July, Apple brought counterclaims to some of Samsung's counterclaims in the parties' federal lawsuit in the Northern District of California. Why counterclaims to counterclaims? The original claims in that lawsuit were Apple's patent infringement assertions against Samsung. Samsung brought counterclaims against those original claims. And then Apple brought counterclaims against some of those counterclaims. Think of it as a "two-lawsuits-in-one" package. There's an Apple v. Samsung track, and a Samsung v. Apple track. We're now on the latter track, which used to be a separate Samsung lawsuit until it was (voluntarily) consolidated into Apple's lawsuit.

On this track, Samsung filed a motion to dismiss and strike some of Apple's counterclaims. In other words, Samsung wanted some of Apple's counterclaims thrown out at the earliest stage possible. The counterclaims Apple brought on this track were, essentially, enhanced versions of its FRAND defenses. Apple of course fought to keep the challenged counterclaims alive.

In a purely quantitative sense, the court agreed with this particular Samsung motion for the most part. Apple was sent back to the drawing board with respect to counterclaims that were lacking in particularity. The judge set a fairly high bar in terms of how Apple would have to amend those counterclaims if it wanted to resuscitate them. Some duplicative stuff was thrown out right away. But a very important counterclaim (under which the court could hold that Apple is entitled to a license to certain Samsung patents on FRAND terms and possibly even determine the amount of a FRAND royalty) survived.

More importantly, Apple's FRAND defenses (like I said, those counterclaims were just enhanced versions of its defenses) are still standing. Those defenses include that Apple denies Samsung's entitlement to an injunction. Samsung's motion to dismiss and strike did not relate to those defenses. In terms of the rationale underlying those defenses, the court order indicates that some broad and excessive accusations aren't credible unless Apple can be more specific about them, but the core of Apple's defense -- the notion that Apple is entitled to a license on FRAND terms and that Samsung should not be granted an injunction unless Apple refuses to take a FRAND license -- is undoubtedly intact.

A simplistic way to put it is that Apple threw in everything including the kitchen sink in connection with its FRAND standard-based defense, which included some accusations against Samsung that were incriminating (if not downright nasty), but the court doesn't buy the excessive part, at least not on the basis on which it was originally asserted. That said, the fact that Samsung aren't quite the bad guys some of Apple's counterclaims made them out to be still doesn't mean that Samsung can use FRAND-pledged standards-essential patents to have Apple's products banned. All of the reasons for which a Dutch judge last week denied Samsung a preliminary injunction based on FRAND patent assertions would still be fully available to the California-based court to deny Samsung a US-wide injunction based on 3G-essential patents.

It's quite possible that Apple knew some of its claims were rather ambitious and aggressive but hoped there might have enough of an argument that the court would at least allow Apple to conduct some discovery, which could always result in interesting findings. Samsung did the right thing by bringing a motion to dismiss and strike, and the judge concluded that the largest part of Samsung's motion was right on the law. This is good news for Samsung, but it's important to understand that it doesn't poke a hole in Apple's FRAND defenses. It just limits those defenses and the related counterclaims to their reasonable parts.

For those who want to look into this in more detail, let me show you the ruling and then explain it item by item:

The court dismissed Apple's claim that Samsung misrepresented its intent to license its declared essential patents on FRAND terms. While the court recognizes that a false FRAND declaration (made at the time of joining a standard-setting process) would be illegal anticompetitive conduct, "Apple has not set forth facts establishing when these declarations were made and by whom, and for which patents these FRAND declarations were made". Apple argued that only Samsung would be able to tell, but Apple either has to be a lot more specific before Samsung produces any documents or this claim won't get a second chance.

Apple also needs to provide more substance if it wants to claim that ETSI (the standard-setting organization relevant to this case) would have chosen a different standard than 3G if it had known that Samsung wasn't going to honor its FRAND licensing commitment. "Without more, for example, factual allegations that there were other technologies considered by the [standard-setting organization] at the time of standard setting, Apple has not met its burden
under the [applicable] pleading standards".

Apple basically argued that a standard-setting consortium is a borderline cartel by definition and it takes only one participant engaging in abusive behavior -- in this case, that would allegedly be Samsung -- to render the whole process anticompetitive. However, the court doesn't agree. Unless Apple can bring specific allegations that Samsung had partners in crime, it doesn't have a point in the first place.

Apple would also have to come up with something better for its claims under California unfair competition law. The issues appear to be the same as with respect to Apple's claim under United States antitrust law.

At least at this early stage of the process, the court allows Apple to pursue a counterclaim asking for a declaratory judgment that Apple is licensed to Samsung's 3G-essential patents. While this counterclaim stays alive, I'm not sure Apple will really convince the court that it has an actual license. It's far easier to argue that one is entitled to a license than to assert that one automatically receives a license. The Dutch decision was also based on the former, not the latter.

The same surviving counterclaim in the California litigation that alleges the existence of a license also asks for a "declaratory judgment setting forth the FRAND terms and conditions for a license to the Declared-Essential Patents, including the applicable royalty rate". The Dutch court didn't want to make that determination, but that doesn't mean that it denied Apple's rights. It's just that the judge in The Hague believes the ball is in Samsung's court and Samsung now has to make Apple a FRAND offer (since the offer Samsung previously made was considered outside of the FRAND ballpark in the Dutch court's view). So the question here is just who has to take which initiative at which point in time before the court will step in and make a determination. It's about the sequence of those kinds of events, but doesn't cast any doubt whatsoever on Apple's entitlement to a FRAND license.

The court then threw out a couple of Apple counterclaims that are "mirror images" of defenses it has already brought. One of those was a request that the court declare that Samsung isn't allowed to ask for an injunction. Apple can still use this as a defense, but the court doesn't see that Apple can additionally ask the court to make a declaration on this legal issue. In practical terms, this means that if the court decides against Samsung's patent infringement claims (for example, because it finds the patents are not valid or not infringed), it won't have to look into the question of whether Samsung would have been entitled to an injunction if there had been an infringement of valid patents. If one defense succeeds, it's game over. But if one or more of the related patents are deemed valid and infringed, and if there isn't any other defense that works, then Apple's claim that Samsung isn't entitled to an injunction would still have to be evaluated by the court as the motion to strike related to a duplicative counterclaim, not to the defense.

My personal view has been all along that Apple sometimes portrayed Samsung too negatively. I also said that in connection with Apple's labeling of Samsung as a "copyist" and "copycat". Samsung may have stepped over the line in some ways. It's quite possible that Apple holds various valid intellectual property rights that Samsung infringes. I also see pretty strong indications that Samsung makes demands that are anything but FRAND, and I don't like that attempt to push the envelope. But I can see why the court isn't inclined to believe that Samsung maliciously subverted an entire standard-setting process, and I doubt that Apple will be able to prove that. Maybe Apple will try again and amend the dismissed claims. It has the right to try, and it can afford it. But I would be surprised if Apple could meet the standard laid out by the judge.

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Tuesday, October 18, 2011

On Thursday (October 13), Apple and Samsung squared off in a hearing held by the United States District Court for the Northern District of California on Apple's motion for a US-wide preliminary injunction against four Android-based Samsung products. According to reports, Judge Lucy Koh indicated at the hearing that one of the four asserted intellectual property rights -- a list-scrolling software patent -- wasn't going to form a basis for an injunction, but she believes Samsung infringes Apple's asserted design patents. Still, there's uncertainty as to the outcome since Samsung may have raised sufficient doubt about the validity of those patents to dissuade the judge from ordering a preliminary injunction.

I frequently talk about probability estimates on this blog (and to an even greater extent in confidential conversations with clients). On this one, I'm not able to guess. My gut feeling is that there's less than a 50% probability of an injunction based on all three design patents, but Apple may win on one or two of them. We will know soon.

Late on Monday, Samsung filed supplemental evidence to support its invalidity contentions against Apple's design patents as well as the list-scrolling patent. Even though the judge indicated that the software patent wasn't going to form the basis for an injunction, Samsung continues to fight against that one, too.

Apple objects to Samsung's filing and says it's "untimely".

Very little information on the parties' new filings is in the public record. It basically comes down to two declarations in support of Apple's objections. Nevertheless I wanted to inform you of this last-minute attempt by Samsung to prove Apple's asserted intellectual property rights invalid, and of Apple's objections to such allegedly untimely evidence.

The Korea Times published several articles yesterday on the Apple-Samsung dispute, which is a big topic in the Korean media. When I tweet about Korea Times articles on this matter, I often get reactions that suggest the paper is too Samsung-friendly. But others have accused me of a pro-Apple bias even though I strive to report as accurately as possible. At the end of the day, every writer will always appear somewhat subjective to someone. The Korea Times certainly doesn't bash its country's largest company, but I find its coverage very informative and a useful complement to all other reports that I read.

In that article, Samsung acknowledges that it isn't happy with some recent court decisions (mentioning specifically some decision in Europe, such as the Dutch decision on FRAND-pledged 3G patents, but probably also meaning the Australian situation). Still, Samsung vows to keep fighting -- and that intent is perfectly credible.

The article says that Samsung's CEO "will take full responsibility of the ongoing legal issue", that a comprehensive settlement is not in sight, that Samsung's "legal team has reached a consensus to beat Apple at the appeals courts", and that they are in this "for the long haul".

I think Apple has the upper hand, but Samsung may be able to reverse some of the decisions that have been taken. For example, the Australian injunction is an interim injunction and may or may not become a permanent injunction. But unless Samsung asserts more FRAND-unencumbered patents, I doubt that differences between countries concerning the application of the FRAND licensing framework are going to save the day for the Korean electronics giant.

A preliminary injunction in the US might be a tipping point, but if it's only based on design patents, it won't mean the end of Samsung's Android-based product offerings. Samsung could resolve this through design changes.

Apple is currently on a winning streak against Android in general and Samsung in particular, but Samsung won't be up against the ropes until Apple can enforce, on a permanent and not only preliminary basis, technically broad patents that can hardly be worked around. Narrow victories can contribute to Apple's momentum and do some damage to Samsung's business, but that's not enough to force Samsung out of the Android business. Samsung announced yesterday that it has sold more than 30 million Galaxy devices. The profit margins and strategic opportunities in connection with that product range dwarf the opportunity of being a supplier of components to Apple.

Protracted litigation is costly and it's a distraction for management, but for Samsung this also generates a lot of publicity, even if some of it isn't overly positive. Samsung's steadfast defense of its interests may, however, pay off if it enables the company to grow its market share and enhance the strength of its consumer brand before one of the three other platforms Samsung is investing in becomes a viable, patent-safe replacement for Android.

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Monday, October 17, 2011

An Administrative Law Judge (ALJ) at the ITC (United States International Trade Commission) has not found a violation by Apple in connection with four HTC patents. This relates to HTC's first ITC complaint against Apple, filed in May 2010 in response to Apple's March 2010 actions against HTC at the ITC and in federal court.

This is the text of the ITC's short announcement of the decision (will comment on it further below):

INITIAL DETERMINATION ON VIOLATION OF SECTION 337 AND RECOMMENDED DETERMINATION ON REMEDY AND BOND

Acting Chief Administrative Law Judge Charles E. Bullock

(October 17, 2011)

Pursuant to the Notice of Investigation, this is the Initial Determination in the matter of Certain Portable Electronic Devices and Related Software, Investigation No. 337-TA-721.

For the reasons stated herein, the undersigned has determined that no violation of section 337 of the Tariff Act of 1930, as amended, has been found in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain portable electronic devices and related software by reason of infringement of one or more of claims 1 and 10 of U.S. Patent No. 5,541,988; claims 8 and 9 of U.S. Patent No. 6,320,957; claims 1, 2, 4, 6, 10, 11, 14, and 15 of U.S. Patent No. 6,999,800; and claims 1 and 2 of U.S. Patent No. 7,716,505. The undersigned has further determined that the asserted patents are valid, that a domestic industry in the United States exists that practices U.S. Patent Nos. 5,541,988 and 6,320,957, and that a domestic industry in the United States does not exist that practices U.S. Patent Nos. 6,999,800 and 7,716,505.

I guess HTC will ask the Commission (the six-member decision-making body at the top of the ITC) to review this determination. The target date for the final decision is February 17, 2012. To be honest, I don't expect anything meaningful to come out of this ITC investigation. I didn't take it seriously from the day it was filed. The patents look weak. Even if they were successfully enforced, I doubt they would pose a serious threat to Apple. At the time HTC filed its complaint, its patent position was very weak and this was basically just a way of indicating a willingness to fight.

HTC still has the weakest patent portfolio of the three leading Android device makers, but it has since bought patents from various sources and brought additional complaints against Apple (with the ITC as well as in federal court). I created a battlemap in mid-September to visualize the dispute between these companies (including S3 Graphics, which HTC is buying). Besides buying up patents from smaller patent holders, HTC also received patents from Google and asserted nine of them against Apple (in August).

In the short term, it's also doubtful whether the acquisition of S3 Graphics will give HTC decisive leverage against Apple. The ITC had issued an initial determination in S3G's favor, but it was a win of limited commercial impact. The ongoing review of that determination appears very unlikely to pose a threat to Apple's iOS-based products (iPhone, iPad, iPod). Recently, ATI (a subsidiary of AMD) injected itself into that process and claimed that it -- not S3G -- was the rightful owner of the patents-in-suit and asked the ITC to dismiss the complaint since AMD/ATI wouldn't want to sue Apple. Apple supported this initiative and said that the ITC should at least conduct an investigation into this ownership issue (which would considerably delay the resolution of this case). S3G has rejected this, but ATI still insists and filed a federal lawsuit in Delaware last week to claim its ownership of those patents.

Most of the interesting information in those documents is redacted, but to the extent that material was in the public record, I must say that I'd be rather surprised if ATI turned out to be right. I will keep an eye on that development but for now I'm inclined to assume that S3G is more likely than not to be the rightful owner of the patents it's asserting in that ITC investigation.

The dispute between Apple and HTC probably won't be resolved anytime soon. HTC won't give up until Apple has decisive leverage, and Apple isn't willing to license this just for a few dollars per device.

As far as Apple's most important patents are concerned, Apple is absolutely unwilling to license them out. An Australian court ruling published on Friday shows that Apple told Samsung that it owns a "thicket of patents" and would offer third parties a license to only "lower level patents". Samsung's patent portfolio is huge compared to that of HTC, and Samsung is still a key component supplier to Apple, so Samsung would be in a much better position than HTC to negotiate a deal with Apple on favorable terms. If Apple doesn't even offer Samsung a license to its key patents, HTC won't get a license to those. And Google lacks the power (regardless of the proposed acquisition of Motorola Mobility) to force Apple into an all-encompassing cross-license agreement.

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About Me

Florian Mueller is a former award-winning intellectual property activist with 25 years of software industry expertise spanning across different market segments (games, education, productivity and infrastructure software), diverse business models and a variety of technical and commercial areas of responsibility. In recent years, Florian advised a diversity of clients on the patent wars surrounding mobile devices, and on their economic and technical implications. (In order to avoid conflicts of interest, Florian does not hold or initiate transactions in any technology stocks or derivatives thereof.) He is now developing a game app for smartphones and tablet computers.